These countries had earlier this year imposed a series of financial, visa and other sanctions on Russia for, in the words of the European Commission, “(Russia’s) actions destabilizing the situation in eastern Ukraine.” The measures included visa restrictions for certain Russian citizens, international financial controls, and sanctions related to the military and energy sectors of the Russian economy.
Some countries’ exporters may benefit
In retaliation, Russia recently imposed counter-sanctions. Announcing the move August 6th, Prime Minister Dmitri Medvedev stated "Russia has completely banned the importation of beef, pork, fruits and vegetables, poultry, fish, cheese, milk and dairy products from the European Union, the United States, Australia, Canada and the Kingdom of Norway.” The principal exceptions to Russia’s import ban are alcoholic beverages, baby food, pet food, and personal purchases abroad by travelers entering or reentering the Russian Republic (such purchases remain subject to normal Russian customs limits). Also excluded are fish roe and larvae. Initially “otherwise processed, prepared or preserved” seafood (e.g. canned fish) was excluded, but Russian processors that compete with the imported finished products have objected and Russian authorities are considering an expansion of the ban to include processed products.
Among the non-EU European countries avoiding sanctions are Iceland and the Faeroe Islands, as are Turkey, Belarus and Ukraine. Published news reports indicate some industry interest in importing sanctioned seafood into these countries for processing (to change the products’ legal “country of origin” by reclassifying them to different parts of Russia’s tariff schedule) before shipment to Russia. (Merely landing fish caught by a harvester in its own country’s waters into the port of another country does not change the product’s country of origin.)
Most fish products are included in Russia’s import ban, which is expected to remain in place for one year (the same scheduled length of time as the western sanctions on Russia). As a result, some major implications exist not just directly for European, North American and Australian suppliers and consumers, but indirectly for suppliers and consumers worldwide.
|Species||Value in NOK 1000, Aug 2013||Value in NOK 1000, Aug 2014||Change in per cent|
|Other fish||1,114||1,092||2 %|
|Greenland halibut||3,085||593||-81 %|
|Blue mussel||108||47||-56 %|
Seafood exporters in Baltics, Norway, UK among most affected
Fish products do not make up a large share of the total food trade affected by the ban – fish is not in the top 10 list of food groups exported by the EU to Russia, trailing food products like fruits & vegetables, pork products, and dairy, and it constitutes less than 10% of US food exports to Russia. Nevertheless, some European seafood exporters are significantly affected. For example, Russia is Norway’s single largest seafood market, with exports (mainly salmon, but also cod and several other species) totaling more than EUR 1.5 billion in 2013. As well, the UK’s chief market for herring and mackerel is Russia, which has historically purchased large volumes of small pelagics from Scottish and other UK suppliers. Perhaps most affected are the Baltic countries, because of their shared border and historically important economic ties to Russia.
In part because of the complexities of the international seafood trade, it is impossible to predict with precision the effects of the ban on value and volume of seafood exports from affected nations, but it is clear that revenues will fall (indeed, are already falling) even as the quantity of shipments might be only slight (and volumes are redirected to non-Russian markets). For aquaculture, especially, a year-long ban might have negligible effects on the quantity sold. It takes years for a fish such as salmon to grow from egg to market size, and therefore, barring the extreme step of destruction of existing inventory, production levels in aquaculture for the next few years are already set –it is only a question of where and at what price the product will be sold.
Alternative markets, alternative supply sources?
Exporters in the EU and other countries, and importers in Russia now face challenges. Exporters formerly doing business with Russian buyers now have to find alternative markets for their product, while Russian importers, processors and marketers must find alternative sources of supply. In both cases, turning domestically may solve part of the problem, but much of the challenge will be finding alternative markets or supply abroad.
Russian distributors of fish products might wish to turn to domestic supply sources, but presumably they would have done so in the first place if such sources existed. Domestic supply prior to the embargo in Russia is either nonexistent or too costly or of inferior quality compared with imports and that is why so much fish was imported prior to the embargo. This problem will take a while to overcome, for it takes time to develop new farms to produce fish from eggs or smolts (which at first must be imported from non-sanctioned countries). As for “wild” fisheries in Russian or foreign waters or on the high seas, there are not many sustainable and underutilized fisheries available to Russian fleets that could yield greater harvests to replace the supply previously imported into Russia. In the meantime, supplies for the Russian market will have to be imported from non-sanctioned countries, such as China, Vietnam, or Chile, to name three likely examples. Again, the cost of such alternative supplies will be higher, or the quality lower, otherwise those supply sources would already have been engaged.
Other potential sources of fish to Russia do exist. In addition to those listed above, possible increases in imports might be supplied by Malaysia, Japan, and Korea, in Asia; by Brazil, Ecuador, Peru, and Mexico, in the Americas; and by an array of countries in Africa. Already, Russian companies, with the assistance of their government, are developing contacts with new supply sources. The above list of countries is not exhaustive, but the countries all share one thing in common: their fish products are either more expensive or of lower quality than the supplies that Russia has now banned – otherwise, Russian buyers would have selected them over the now-banned products in the first place.
EU and other sanctioned exporters of fish products will have to find new markets for their products, or reduce their prices in existing markets to stimulate demand. Either avenue means reduced net revenues. North American exporters are at an advantage compared with European exporters in that the former are less dependent on the Russian market than the latter. But, particularly disadvantaged are eastern European exporters, some of whom (such as nations on the Baltic Sea) have depended on Russia for half or more of their sales volume. Norway and Scotland have also depended on Russia for sales of salmon and small pelagic fish. Turning around their shipments to European markets will be hard for many such European producers when every other European firm affected by the embargo is doing the same thing; and yet the next best alternative – exporting to the Americas, Asia, or Africa – entails added costs, especially high costs for shipping high-valued fresh seafood.
Winners and losers
It’s easy to see the biggest winners in this trade challenge: they are the consumers of fish products in most of the western world. With the Russian market cut off, exporters in the sanctioned countries will find themselves having to reduce prices in order to stimulate demand among existing and new consumer markets worldwide.
Additional winners include the seafood industries of Iceland, New Zealand, China, and many other important producers not sanctioned by Russia, who are already being approached by Russian byers as alternative seafood sources.
It’s also easy to list the losers, but it’s a much longer list: the losers include exporters, processors, fishermen and other workers in the seafood industries in Europe, North America, and Australia; also, Russian seafood importers, distributors, and workers; and Russian seafood consumers. Sanctioned exporters will have to find new markets for the products previously sold to Russia, and that necessarily means reduced net revenues (otherwise those markets would already have been targeted if they were more valuable than Russia). Russian importers and distributors will have to find alternative sources of supply, raising their costs – either in the form of higher prices or lower quality. And Russian consumers are among the real losers, facing the choice whether to consume more costly and/or inferior seafood, or avoid seafood altogether.
To make matters worse for the producers and consumers of seafood – and other food products – the Russian food import ban comes at a time when the economies of Russia and most of Europe are in the doldrums. Economic growth in most European countries is stagnant, and some national economies have sunk back into recession. The economic effects of a trade blockade of food – an important component of daily consumer life and the source of millions of livelihoods – is, according to numerous news reports, already showing up. Consumer price inflation in Russia is now above 7 percent – far higher than in the rest of Europe – and the ban on food imports will only exacerbate this problem.